(101) How to test the viability of a business model?

  • First, it gives you a false sense of comfort. There is no foundational basis for the estimate,
  • It doesn’t address how to get to this 1 percent market share with your specific product.
  • 1 percent market share might not even be the right success criteria for you.

1. Determine your minimum success criteria

  • Keep your time box under three years.
  • Frame the outcome in terms of a revenue (or throughput) goal.
  • Remember that the goal is a rough ballpark

2. Convert Your Minimum Success Criteria to Customer Throughput

  • Pricing Model: In order to calculate the customer throughput needed, the first critical input we need is a pricing model. Most times Lean Canvases dont specify the pricing model. Even at the early ideation stage, you need to get specific on pricing. The biggest objection you often hear is: “How can I price a product when my solution is still uncertain? Price against their problems (using value-based pricing) and not what it’s going to cost you to build and deliver your solution (that’s a cost structure concern). You do this by anchoring against their existing alternatives, which should ideally provide evidence of monetizable pain.
  • Again, precision here is not the goal but an estimate. First estimate to an order of magnitude. Is your solution potentially worth $1/month, $10/month, $100/month, “$1,000/month, $10,000/month? Then use your knowledge of your customers’ existing alternatives to get more specific.
  1. Does your value proposition have recurring utility?
  • One way to guess at the customer lifetime is through the nature of the problem you are solving. Is it a single-occurrence problem or something recurring? If recurring, how frequently would users need to solve the problem and for how long? From there you might be able to guess when they might outgrow your solution.
  • Once you can clearly articulate the job your customers hire your product to do, it becomes easier to estimate the average time it might take to accomplish the job. “If you hire a painter to paint your house, you expect him to be done in a few days. If he is still there two months later, that’s probably a bad sign.
  • Studying other analogs in your vertical, or domain, can also be an effective way of estimating your average customer lifetime. In the SaaS world, for instance, Salesforce (the largest company in this space) reports a four-year customer lifetime. It doesn’t mean you can’t do better, but it helps to ground your own estimates.

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Ravi Kumar.

Ravi Kumar.

1.3K Followers

Building nextgen real estate platform at PriceHubble & podcaster at productlessons.com. I blog about products, business around products, and growth strategies.